In the above shown chart representing the daily candlesticks pattern of the bank ‘ Bank Of Baroda’, the theory of Bearish Piercing pattern is applied during the period from 10th December 2016 to 21st December 2016. The following factors have to be considered to confirm whether a bearish piercing pattern has formed :
1. There should be a recent rise in prices indicating a trend reversal.
2. The red body should cover the previous day’s hugh.
3. The current day’s body should cover at-least 50% of the previous day’s body.
4. The lower tail should be small in size.
In can be inferred that the formation of Bearish Piercing Pattern has been formed during the above mentioned period as all the factors required to be fulfilled have been met. Since the formation reveals a bearish outlook, it can be advisable for the trader to adopt a short position and cover the position later at the appropriate target price. The trader is required to enter the market by selling the stock at Rs 159.50, and buy back the stock at Rs 139.50, which equals to a reward of Rs 20, which is equivalent to the risk taken by setting the stoploss at Rs 179.50.
